Should I refinance from a 10Yr arm to a 30yr fixed?

Totalfixation

LoanSafe Member
Jun 22, 2019
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I'm 1yr 8months into my 10yr arm at 3.25%

I've gotten a rate lock for 30 years at 3.65% and no out of pocket expenses. Just prepaid escrow account

My conundrum, I'm making extra partial payments each month, hoping to bring down the principal by the time the 10 years is up, I would refinance to a 15yr loan at hopefully around the same rate at 3.65%. The goal is to pay down the house in 25 years or sooner. I'm also not so certain what I'm going to do in the future, if we would stay there or rent it out or flat out just move.

So is it worth holding onto the arm and save .40% for the next 8 years and risk what rates may be in the future.

or should I lock myself into a 3.65% rate and basically reset my mortgage?

Thanks for any insight everyone.
 

OneHugeMess

LoanSafe Member
May 30, 2016
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Honestly, it's really going to depend on what makes you sleep better at night. Interest Rates, will very likely be in the 5-6% range 10 years from now, but it's also possible we could be in a negative interest rate environment if things got bad. No one can predict these things.

Here is what you should know.

When your loan resets in 10 Years, it will automatically recast, and the payment will be based off the adjusted interest rate + amortized amount to pay it off over (20) years. So... if you continue making extra principle payments, and paying it down, very likely... you'll end up with a even lower monthly payment than you started off with initially. You will be paying a higher rate (likely) but the payment will be even more manageable and you'll have the ability to pay it down as much as you want.

I also want you to look over your loan documents and familiarize yourself with the ARM Caps. Lenders redesigned these heavily after the Mortgage Meltdown and they are a whole lot safer than they were back then. Generally, most offerings are setup as Maximum 2% on the first reset, Maximum 2% on each following adjustment date, and 5% is usually the capped rate, meaning, your loan will never be higher than 8.25%. Credit Unions however, will have very different and odd blends, so check over everything.

My advice to you is... if you feel like you can be diligent and make the extra payments, than you should keep the ARM and just pay it down. When it resets, hopefully you'll have paid off at-least 50% of the loan balance, and it'll reset to a extremely low payment.

If you do not fill comfortable - than consider doing the refinance. BUT... only if you can do it, with little or no closing costs. I feel as though, you'll have to pay 2 or 3 points to get that rate of 3.65%, and if you do -- I would not pull the trigger. I would try to keep my ARM and pay it down.
 

Totalfixation

LoanSafe Member
Jun 22, 2019
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Thank you for taking the time to explain your opinion. I really appreciate it.

I have opted to go for the refi, it's probably a safer bet. However, I've been told that it's an election year and chances are the rates may stay low or possibly go lower. I have a few weeks to decide as I was able to lock in the rates at 3.625.

Curious to understand why you would think 3.625 would require paying 2-3 points? Loan costs is about $2600, lender credit is about the $3500 to cover prepaid interest and prepaid escrow account.
 

Erik Sandstrom

Mortgage Expert - Call 1-619-379-8999
Staff member
Loan Safe Mortgage
Jan 14, 2011
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San Diego, California
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Hi Totalfixation,
Ultimately you made the right decision with going forward with a 30 year fixed. I think that's the safer direction than the current loan you are in however Onehugemess brings up some very valid points.

Also in addition regarding the rate you are being offered, what type of loan are you doing? 3.625% is a little unheard of in the market right now without any discount points or large lender fees. What you mentioned above is that you're receiving a credit of 3500.00 to cover expenses above and beyond the 2600 loan costs (assuming those are lender fees, title, escrow, notary..etc)? Being a mortgage lender that competes with everyone in the market, I'm honestly surprised you got that and if you want to be on the safe side, feel free to e-mail me the lock-in agreement and loan estimate and I would be happy to review it with you to make sure it looks good.

Also, you mentioned you have a couple weeks to decide...make sure you continue with whatever your loan officer is asking for (documents) to ensure closing on time. Again, feel free to e-mail over the loan estimate here: [email protected]...I'd be more than happy to have a confidential conversation with you about this anytime. Whether it's myself doing the loan or someone else, it's always good to have a second set of eyes looking at it.
 
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OneHugeMess

LoanSafe Member
May 30, 2016
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Curious to understand why you would think 3.625 would require paying 2-3 points? Loan costs is about $2600, lender credit is about the $3500 to cover prepaid interest and prepaid escrow account.
Like Erik mentioned, that interest rate is extremely hard to beat, with that pricing, and I've only seen similar deals on 15yr Fixed Rates, and short term ARM's. I personally would read over the Rate Lock & Loan Estimate very carefully for some sort of surprise. You may just have a great lender though.
 

Erik Sandstrom

Mortgage Expert - Call 1-619-379-8999
Staff member
Loan Safe Mortgage
Jan 14, 2011
2,052
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San Diego, California
www.loansreduced.com
It's wild how low the rates are right now, I'm just wrapping up a 3.25 no lender fee/or discount points, 30 Year Fixed VA IRRRL. But...that's VA...FHA it's possible to do something similar depending on credit. Conventional is a little different ballgame and that's what it sounds like this is.
 

Totalfixation

LoanSafe Member
Jun 22, 2019
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Sorry for the late reply, so the closing cost is roughly $2800, lender credit is roughly about $3500. However there are prepaid escrows that I have to pay upfront. I know this person on personal level and he works for a large direct lender and so he may have given me more discounts than the usual customer. But the thing is I have shopped around and it seemed like other lenders would be able to offer the same thing so I wasn't sure if this was a good deal or not because I'm very reluctant to go from a 3.25 arm with 8 years left vs going with a 3.625.

A bit of an update, I did shop around and I was able to negotiate the rate down to 3.5% (same lender) with less lender credit, $2800 which covered nearly all of the lender fees. Just nothing to cover prepaid escrow accounts.

Yes it is a conventional loan
 

Erik Sandstrom

Mortgage Expert - Call 1-619-379-8999
Staff member
Loan Safe Mortgage
Jan 14, 2011
2,052
161
63
San Diego, California
www.loansreduced.com
Rates aren't going to be going up anytime soon, 3.5% is a fantastic 30 year fixed rate and to have an extra 2800 in closing costs...sounds like a win win. Why would you be so concerned about going from a 3.25% to a 3.5% - that's a 1/4 point...I can't imagine you're going to feel any difference with the monthly payment. Shoot, it may actually go down depending on how long you've been in the loan. I say - do it!